Call for greater curbs on executives’ pay

Published:18:00Thursday 19 January 2012

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How will you spend your pay bonus this year?

Chances are, in fact, that you won’t have had a bonus, you probably haven’t had a pay increase and you are thinking about how to keep your job in the light of declining economic performance and rising unemployment.

This is in contrast to the pay experience of a band of people at the top of organisations which shape and define modern life.

Take the new chief executive of Apple, Tim Cook, who took over from Steve Jobs just before the latter died last year. Mr Cook received a pay package in 2011 of $378 million, or some £244,000,000. As my nana used to say, I wish I was a penny behind him.

In many respects, the example of Apple, certainly under the leadership of Steve Jobs, the previous chief executive, is not the best one to use.

Steve Jobs came back to Apple in the late 1990s and turned around a poorly performing company that was looking old-fashioned and obsolete, into an organisation offering innovative, even beautiful products like the iPod and the iPhone which people eagerly wanted.

As a result, Apple’s profits increased massively, as did its share price.

Apple was worth about $17 a share in 2000. Last time I looked, you could buy the same Apple share this week for over $425.

I don’t think anybody would mind success being rewarded appropriately.

We all have an interest in companies doing well – they provide employment and offer goods and services which make our lives easier or better.

Better company performance will result in higher dividends and share prices, and as many of our pensions will be invested in these companies, our retirement provision should improve if companies do well.

If executives produce sustainable growth that benefit their shareholders and the communities in which they operate, there is a case that their pay should reflect that.

I think what angers most people, quite rightly, is when executives are paid an obscene amount of money but there is no increase in success.

There is no link between paying a huge amount of money and a successful performance by the organisation.

In many respects, executives are failing and are being rewarded handsomely for it.

The situation with the banks is an obvious example, but it is not confined to the financial sector.

Take Cable & Wireless, an important and historic British company that spans the world. It is important for the UK economy that this British company does well.

The top two executives were paid £9million and £10million. But in that time the company stopped paying a dividend because it couldn’t generate enough cash, it imposed thousands of job losses, it took £650million out of its accounts, and its share price fell from 90 pence two years ago to about 17 pence today.

Last year, one of the executives quit and took about £650,000 in severance pay.

The other concern is the big difference between executive pay and the wages of ordinary workers.

In 1980, the boss of Lloyds was paid £79,000, which was 13 times higher than average pay.

In 2010, his successor was paid £2.5million, which was 75 times the average pay packet.

Such a growing gulf between the experiences of ordinary people, especially when they are experiencing cuts in standards of living, and the elite is simply unsustainable and morally questionable.

Greater curbs on executive pay, with more transparency, more effective reporting and greater representation of workers on committees that set these top levels of pay, are something which needs to be addressed quickly.